Robert Blum - Lytham Partners Mark Grewal - President and CEO Matthew Szot - CFO.

Tyler Etten - Piper Jaffray Mike Malouf - Craig-Hallum Gerry Sweeney - ROTH Capital Ian Gilson - Zacks Small Cap Research.

Good afternoon and welcome to the S&W Seed Company Reports Fourth Quarter and Fiscal Year 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Robert Blum of Lytham Partners. Please go ahead..

Thank you, Amy. And thank you all for joining us to discuss the financial results for S&W Seed Company for the fourth quarter and fiscal year 2016 ended June 30, 2016. With us on the call representing the company today are Mark Grewal, President and Chief Executive Officer; and Matthew Szot, Chief Financial Officer.

At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Before we begin with prepared remarks, we submit for the record the following statement.

Statements made by the management team of S&W Seed Company during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected.

Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projecting the forward-looking statements as a result of various factors and other risks identified in the Company’s 10-K for the fiscal year ended June 30, 2016, and other filings made by the company with the Securities and Exchange Commission.

With that said, let me turn the call over to Mark Grewal, Chief Executive Officer for S&W Seed Company.

Mark?.

Thank you Robert and good afternoon to all of you. I am very pleased with the progress made during fiscal 2016 to position S&W Seed Company as an evolving leader in the agricultural seed industry.

And during the year, we’ve strengthened our leadership position in the alfalfa seed market, expanded our product offerings into two new complimentary crops and have positioned ourselves for organic growth through the expansion of contracted production acreage and newly signed licensing agreements.

And this strategy is solidifying and growing the core operations while leveraging the infrastructure with new product opportunities has been and will continue to be the cornerstone of our strategy to grow S&W into leader for years to come. Within our core alfalfa seed operations, fiscal 2016 was a pivotal year.

Our goals at the onset where to ensure the successful integration of the recently acquired DuPont Pioneer operations set the stage for organic growth of our historical S&W operations by increasing our contracted acreage and drive improvements in gross margins and continually innovate our product offerings.

On the first point, we spend a tremendous amount of time ensuring the Pioneer operations were successfully integrated into S&W. Working with the leadership team, this transition has gone exceedingly well.

We are meeting the demands from Pioneer on both product supply and development, and feel very good about the working relationship we have in place to continue providing DuPont Pioneer with high quality alfalfa seed varieties for years to come.

On the second point, the production team has done an excellent job increasing our dedicated acreage under contract. For calendar year 2016, we are anticipating a 15% increase in acres dedicated to alfalfa seed production. This increase in contracted acres will be a driver for our anticipated organic growth in fiscal 2017.

On the third point, we worked through the higher seed production cost driven by lower than expected yields on the 2015 alfalfa seed harvest to come in better than originally expected on our gross margins.

This impact of higher seed cost is expected to subside during fiscal 2017 as the company has terminated production arrangements where its product costs are variable on a per unit basis. Beyond these core operational items, we continue to progress our development of next-generation traits.

We will be introducing in the fall of our 2017 our newly developed S&W varieties with Roundup Ready trait. Additionally, we expect to have the first trialing from Calyxt's patented gene editing technology in the field soon for testing.

The continual strides we have made within the alfalfa seed operations have put us in a strong position to continue growing this product line for years to come. The key components of products, distribution, production and research and development are all in place.

Transitioning to the next stage of our growth, I have mentioned for the last few quarters that the backbone of S&W is very strong allowing us to continue to look for complimentary product lines beyond alfalfa to grow and leverage the strength of our infrastructure.

In May 2016, we announced the acquisition of SV Genetics, a provider of hybrid sorghum and sunflower seed varieties. That fits ideally into our long-term strategy to be the world's preferred provider of seeds for 40 forage and specialty crops.

The acquisition of SV Genetics leverages the worldwide research, production and distribution platform we have built in alfalfa and enters us into two new exciting complimentary crops.

Over the last decade, SVG’s breeding program has developed a portfolio of both hybrid forage and grain sorghum seed varieties as well as hybrid sunflower seed varieties. They have out-yielded commercial competitors into our trials in key markets across the globe.

SVG currently licenses its proprietary seed genetics and sells parent seed to local market production and distribution partners. The license is produce hybrid seed using the SV Genetics and pay SVG a royalty on the seed produced and sold.

SVG has licensing agreements with a number of different partners to provide us grain sorghum, forage sorghum and sunflower genetics in numerous locations throughout the world. Most of these agreements were recently signed which begins the process of moving them into production, which is where we make our royalty.

We are optimistic about the future growth profile of this business as we move forward. We also believe there are strong synergies where the SVG hybrid sorghum and sunflower varieties can be sold into S&W’s existing distribution channels.

While providing an opportunity for S&W to expand its distribution of alfalfa products into those markets were SVG has a presence including Eastern Europe and Russia. While this acquisition was not the size of the recent Pioneer one, the importance for us to expand into complementary product lines is critical to the long-term success of S&W.

As we look to fiscal 2017, the components are in place to drive improvements in all key aspects of the business. The contracted production acreage from its current calendar year will provide us with a higher quality product that we need to drive growth within the alfalfa seed operations.

And as you can recall in fiscal 2016, we were behind the eight ball with limited seed inventories driven by the weaker harvest during calendar 2015. Those weaker harvest drained our inventory levels even forced us utilizing increasing levels from the April 2016 Australian harvest to meet the needs of customers during the last fiscal year.

While we’re optimistic about the demand for our seed to run this business more efficiently, ideally we need to ramp up our inventory levels a bit.

So with an eye towards driving efficiencies, while also meeting demands, we are initially anticipating an increase in revenue for fiscal 2017 to $100 million with improvements in gross margins to the 21% range. We believe there is certainly room for continuous improvement in both revenues and gross margin.

However, until we have some more clarity on a few items including yields and product registrations, we want to provide what we believe is a conservative outlook to the year. And Matt will go into greater details on a few of the other financial items as well.

Overall, I'm confident in the strength of the business right now but we still have a long way to go. We have recently appointed Dan Gardner to the new position of Chief Marketing and Technology Officer where he will focus on enhancing S&W's position as an innovator in the agricultural seed industry that brings increased value to its customers.

The highly differentiated genetics that we provide bring tremendous value to farmers; it is up to us to better capture that value and the share in the increased profits that we help provide. Dan’s extensive knowledge of the alfalfa seed industry and genetics positions him ideally to lead this charge into the future.

With that said let me turn the call over to Matt Szot for a review of the quarterly results..

Thank you Mark and thank you to everyone on the call today, since most of you should have a copy of the financial results and the press release, let me spend some time going through some of the more pertinent details of the quarter and discuss some of the impacts to the financial model on a go forward basis.

For the quarter, revenue totaled $34.6 million compared to $28.7 million in the fourth quarter of the prior year, an increase of 21%.

The increase in revenue during the quarter was primarily driven by an increase in shipments to Pioneer as well as increased shipments from our operations in Australia due to an earlier harvest which increased our product availability in June. For the year, revenue increased to $96 million, up from $81.2 million, an increase of 18.3%.

The sale of Pioneer varieties increased by $12.5 million during the year while our other non-dormant seed revenue increased by $2.3 million representing an organic growth rate of just under 5%. Gross profit margins during the quarter were 19.8% compared to 21.6% in the fourth quarter of last year.

The decrease in gross profit margins as we previously discussed was primarily due to the highest seed cost within our non-dormant operation and this was driven by lower than expected yields in the fall 2015 of alfalfa seed harvest.

These lower yields and cleanout rates resulted in higher per unit production cost on contracts where we carried [ph] farming and yield risks. The limited variability of future production cost due to farming yields we have terminated all production arrangements, where our production costs are variable on a per unit basis.

And we are increasing our contracted grower acreage where our production costs are generally fixed on a per unit basis.

Despite the headwinds of higher seed costs, gross profit margins were stronger than anticipated during the fourth quarter as we accelerated our optimization program, maintain a strict pricing strategy within key alfalfa seed markets as well. For the year, gross profit margins were 19.1% compared to 20.4% in fiscal ‘15.

Again, the impact from higher seed costs partially offset by initiatives to improve pricing and reduce costs resulted in the net decrease in gross profit margin. As we look to the first quarter of 2017, gross profits will reflect thinner margins solely due to timing on product mix.

However, as we look to the full-year, we expect an improvement in gross profits driven by reduced production cost, increased optimization and expected stable pricing in the market. Adjusted SG&A for the fourth quarter totaled $2.9 million compared to adjusted SG&A of $2.5 million for the fourth quarter of the prior year.

A portion of the increase can be attributed to the professional fees associated with our tax planning strategy that we successfully implemented. Additionally, the company incurred expenses of approximately $200,000 in the fourth quarter pertaining to transaction expenses associated with our acquisition of SV Genetics.

For the year, SG&A was $20.1 million, adjusted SG&A was $10.1 million and we expect SG&A to increase to approximately $10.5 million for fiscal 2017 as we focus on expanding our sales and marketing initiatives. During the quarter, research and development was approximately $715,000 compared to $838,000 in the fourth quarter of the prior year.

For the year, R&D expenses totaled $2.8 million. Now we do expect R&D expenses to increase to approximately $3.3 million in fiscal 2017 as we expand our hybrid sorghum and sunflower product development activities. During the fourth quarter, we incurred approximately $413,000 in cash interest expense compared to $694,000 in Q4 of the prior year.

We continue to make tremendous strides in paying off the convertible debentures. Our current outstanding balance as of today is $5 million. It’s our expectation that we will retire this remaining balance on the convertible notes over the next six months.

And as we continue to pay down the convertible notes, we expect the cash interest expense number to steadily decrease over the remaining term.

We continue to recognize certain non-cash charges, during the fourth quarter we recognized $273,000 due to the change in fair value of derivative warrant liabilities, $54,000 due to the change in contingent consideration obligations and $788,000 of interest expense due to the amortization of debt discount. Now these are non-cash charges.

In fiscal 2017, based on our currently planned payment schedule, we expect to recognize non-cash interest expense related to the amortization of debt discount as follows. $563,000 in Q1, $347,000 in Q2, and finally $102,000 in Q3 and that will be the completion of our amortization of debt discount.

Our adjusted EBITDA during the first quarter was $3.5 million compared to $3 million during the fourth quarter of last year. For the year, adjusted EBITDA was $6.9 million compared to $7.5 million last year.

It is our expectation that as we look to fiscal 2017 that our expected revenue growth coupled with improved gross profit margins should drive improvement to our adjusted EBITDA line item either.

For the year, GAAP net income was $365,000 or $0.02 per basic and diluted share compared to a GAAP net loss of $3.2 million or $0.25 loss per share last year.

Overall, we continue to make strides to strengthen our balance sheet, we ended the quarter with $6.9 million in cash and as I've mentioned we have a current balance in our convertible notes of $5 million.

As Mark mentioned earlier, we ended the year in a lower inventory position than we did in June of ‘15 as we utilized more inventory from the April 2016 Australian harvest to fulfill orders during the quarter.

A portion of the increase in our acreage for crop year 2016 will restore our carryover inventory balances to optimal levels positioning us to better support demand in FY18. With our commitment to debt reduction and initiatives to expand margins, we believe we are well positioned to deliver improvements in profitability during 2017 and beyond.

Now, I know I went through a lot of data here, so if you have any questions please feel free to ask and I’m going to turn the call back over to Mark..

Thank you, Matt. From a macro level, global demand for agricultural crops continues to rise, driven by an expanding global population and increases in per capita consumption.

As a world, if we are to meet the demands placed upon us by these trends we need to become more efficient in our production while developing crops that can be grown in areas of the world previously unavailable to us.

At S&W, we are developing some of the highest yielding of alfalfa, sorghum, sunflower and stevia varieties to help meet these global challenges. We are also breeding key traits that will enable further expansion of these crops to parts of the world once deemed arable.

By leveraging the strengths of a global distribution platform, a large and diversified production base, leading edge research and development and a strong and expanding product portfolio to drive growth, we stand ready to meet these global challenges today and into the future.

As always we thank you for your support and now let's open up the call for your questions.

Operator?.

[Operator Instructions] Our first question comes from Tyler Etten at Piper Jaffray..

On the shipments to DuPont business in the third quarter and in the fourth quarter you noted that there was increased shipments or than expected shipments to DuPont, are these being pulled forward from the first quarter and to follow with that since you're only expecting $100 million in fiscal ’17, it seems like a small step up compared to the growth we've seen in past years, does that have anything to do with it?.

While I would say no, the Q4 revenues did not pull forward any Pioneer revenue from next year, we’re really on a sales year so the crop has been harvested now, we'll be ready to be prepped and shipped to Pioneer over the next couple of months. Mark you want to address….

Tyler, we're just being - we're very optimistic that we’re being very conservative on where we’re headed right now because we need to make sure that we have the added distribution that we’re working on and we haven’t currently completed that during this conference call.

At the same time, we did pull a lot of Australian seed into last year that would have gone into this year to help with the optimization program, so we're going to have to wait for next years. And we’re also working on registration production regulatory issues in different countries.

So we can grand some of our product that we hope is going to take out some of the public varieties and turn them into proprietary operations. So to do that, we’re just being conservative on our numbers until we know we have all that in the place.

It will be in place at some point, but we don't know what the timing is and we only have like a six-week window of outlook right now on where we actually are right now, so we’re being pretty conservative..

Maybe to expand on that a little bit more, are you concerned about I guess what’s your main concern here is it inventory levels, is it being able to hold pricing or increase pricing or demand rising in the regions that you operate, I guess what is your main concern?.

Once we set up a new registration of a variety or a product mix, we can’t change that mix. So we have ensure that we’re going to be reliable from year-over-year and we can also supply it.

This last year really we got caught in a very tough position where we were outsourcing seed from others even competitors to supply our customers and we had to do a lot of products which is, which they don't like to see and it reduces year outlook as far as reliability to them, because if they want 9628, they want 9628, they don't want 9628 with something else in it.

So we had to do a lot of things, they hung with us and we have to take a small step back to really jump leap years ahead with our process.

So our marketing guys are being driven right now to get some new product lines and so if we ever run out for a certain variety, a SuperSonic by SGI, our Australian operation for example is a very popular variety, we are out of seed.

So what do you replace it with and then can you replace it in certain countries if - and how long does it take to get the registration, Tyler.

And so that's what we're looking at is just there are timing issues just like on a margin in a quarter of what we’re having to sell in a mix for that quarter and so we're just trying to give you a conservative outlook, it’s - I'm very happy about it, we're constantly growing, we’ve really expanded our production acres, and now we got to make sure that we have the distribution setup and the contracting setup that makes that work for our customer..

Understood. Thanks for that..

You're welcome. Feel free to get whatever you need. Just let us know, we will try to walk you through some of that if you needed..

Sure, thanks. Maybe, just one more from me and I'll pass it along.

Now that you guys are operating with more fixed production costs, is there any more certainty of where margins would be or have you guys thought about providing some sort of a margin guidance just because there is less risk out there in terms of your production costs?.

Well, we certainly are expecting, Tyler, margin, gross margin improvement as we move into FY ‘17 and that’s going to be - that has been driven by the fact that we've eliminated yield and farming risks from our production arrangements. That itself will be driving the same probably a couple of hundred basis points of improvement.

And that, coupled with our optimization program and hopefully what we expect is strong pricing in the markets. A culmination of those three factors should not only provide margin improvement in ‘17, but really should provide a road map for how we continue to expand margins for the foreseeable future..

The next question is from Mike Malouf with Craig-Hallum..

Hey, great. Thanks for taking my questions. Nice quarter guys.

I'm wondering Matt, maybe you could address a little bit about seasonality next year as we sort of look into certainly the September quarter and just get a sense of how the quarters to the best of your ability can sort of plays out now that you at least had a more steady state, than you've been in a long time?.

Right. So Mike, I think the, as we look to Q1, our Q1 revenues are always in the current environment, our smallest quarter from a revenue perspective.

So we’re expecting Q1 revenues to be relatively flat with the prior year and the incremental growth that we’re guiding to over the year would be spread out evenly over Q2 through 4, based on the cadence that we experienced this year..

And then, with regards to the gross profit, how would you think that - is there any seasonality effects to that?.

So the Q1 gross margins will be in the teens, it's a thinner margin quarter based on product mix and it's just a lower volume quarter, but we will see the more dramatic margin improvements in Q2, Q3, as we start shipping our higher product margin product to Pioneer..

And maybe Mark, I know that you've talked about these expectations being quite conservative, and sort of given where we are in the ramp up, we certainly appreciate that, I wondered if you could sort of dream a little bit and say, hey, if things go well for you, where could the numbers sort of the range get to on a revenue basis over the next year or two.

And then the same question to gross margins, just to give a sense of what is the opportunity here with both of those as you look at distribution getting registered, adding some of these other varietals to the mix? Thanks..

All right. Mike, that’s work on some of the other real critical components.

To start with the registration process, we can move pretty rapidly in the Middle East, North Africa geographic and it is much slower in Europe, we have been working on Europe here for at least half a year and it could take upwards of three years to get it all done in Europe and it won't take that long in the Middle East, North Africa.

We are seeing a lot of action in the sedan, but at the same time, we are just cleaning the seed crop, Mike, in California, where maybe a third completed and then what's going to happen in March, April and May in Australia.

So we really amped up and increased the acreage to hopefully provide for that added expectation you like to see on the, you would like to see us come out with, but we have to make sure that we are set up properly to actually go back again and again and again and be able to supply that same product line to that exact customers because he is going to want the same thing exactly.

And so what we've done for the first time really is, I mean the last two years, this last year was tough because we literally were buying product that wasn't part of the mix, and we were trying to get this stuff all into different avenues and I got to tell you that the guys did a tremendous job, but there is no reason for us not to get to that 25% margin range fairly quickly, but I think we are there, with two thirds of our product line, quite frankly, the Pioneer lines and the SGI in Australia.

We're still working on driving our IVS S&W lines more into the Mexico market and stuff and to get to those levels and the way that the first stage of that was actually to get out of some of our farming cost variable contracts and into just flat fixed rate contract pricing and in fact, we've gone to some one-year deals to try to help that out also.

So, I know I'm beating around the bush on some of your questions, but we could have a really, we could have a lot more, but I hate to see [indiscernible] come out there and say, oh we’re going to do easily a 105 year and then 110, 120, 125.

We are building an extremely solid platform and we are taking market share from our competitors and the way that we are doing that is to really bring out a quality product that that customers willing to change over with and at the same time, we are developing the support in the field, I mean my Chief Operational Officer, Dennis Jury just came back from Sudan, he's out there in Sudan with these guys helping them learn how to farm hay and we have some guys from Pakistan, four or five guys in Fresno, I spent three days with them actually teaching them what to do.

These guys all want to expand, Mike, but we got to make sure that we are with the right distributor that Matt is collecting the money, and he's getting it the way he wants it, and that all these little details are in place before we just go out and blow something up.

So I think we're doing a good job, step-by-step, I think we are doing a lot better job than we did four years ago, and I think you can see the results quarter by quarter a lot better by us being a little more conservative. [indiscernible] your expectations a little bit..

No, I understand. I thought I could get you to dream a little bit, but it's nice to see you kind of keep it then..

Well, I mean, if we can talk more in November, December on the next call, because we’ll actually know a lot more, we’re dealing with a number of distributors right now, we're trying to complete some opportunities and these are people we've never been with before Mike. So once we get going, and some of them are fairly substantial..

Great. I'll pin that question again then on the next call.

One other question, can I follow up on a couple of the growth opportunities that you've always had brewing around, one is stevia, can you give us an update on what's going on with that? And then I know that you've been talking a lot about other types of areas, particularly the reinforced type, sort of very rain intensive areas, tropical varietals of alfalfa, can you talk about both of those? Thanks..

Okay, we will start with stevia. Again, it's going to be - we're going to have a lot more clarity in the next call. Our Chief Marketing Technology Officer has been with some other distributors on stevia and we’re trying to get some R&D projects that they are very interested up and going.

I hope that - I think the investors are going to be pleasantly surprised when done, but I just want to hold off on that yet. We are about six months away, we believe with receiving some patent data, we will actually have our first patented ones, we've got four patent pending.

It appears we’re about six months out from getting those reviewed through the government. And once we get that going, I think the guys that have really stayed in on the stevia side are going to be pleasantly surprised.

On the other crops that we deal with and forages, we haven't talked a little bit - we haven't really talked much about some of them that we’d already have like clover, where SGI was strong enough to begin with. We see that expanding, especially in the India and subcontinent of African markets. So I think you will see an expansion there.

And the tropical is very important and quite frankly, our SVG group has the ability to do non-GML corn and I think you're going to see some more corn type things going into those tropical environments, but again, I would say that the sorghum is the major fit, because sorghum can be grown with less water and on a per unit basis, drives more yield to the animal, I think corn and we're getting all that data together.

So we are expecting some big, big opportunities coming out of our sorghum..

[Operator Instructions] And our next question comes from Gerry Sweeney at ROTH Capital..

Not to beat the dead horse here, but just a couple of follow-up questions on the margins.

You talked about the ending your per unit production contracts, is that done in Q4 or do we see some of this carryover into next year, some of that higher price seed?.

I mean, Gerry, for all intensive purposes, it's slashed through as of June, there will be some nominal amounts will flow through the first half of the year, but we don't see that having any sort of significant drag on margins. Our Q1 margins will be thinner, but that's solely due to product mix..

But in the past, you’ve mentioned I think the production contracts being at 250 basis points drag on margins, is that correct?.

Right, that's correct..

And this is where I’m heading, then you had the optimization program, I can't remember it off the top of my head.

If you could - spoken about the opportunity on that front, longer-term or even short-term, how much opportunity do you have on the optimization front?.

Well, we are making progress in the optimization program. In Q4 alone, having varieties produced in Australia and drop shift directly into the Middle East, added probably 100 basis points of margins from that alone.

And we now have roughly; we have over 2,000 acres dedicated to S&W Seed production in Australia, while we certainly want to increase that dramatically, that is up from 1,000 acres last year. So we think we’ll get exponential growth from Grover, recruitment in Australia, there.

It takes time, but certainly as that program rolls out, we see that being a very significant and transformative component to our business from margin expansion..

So on the optimization front, it's more of a function of getting more contracts closed in Australia, moving at 2,000 to 3,000?.

Having them plant these California varieties, exactly..

The addition Gerry is that to add the seed that we can ship over from Australia to California landed in product mix and into other product lines, where it is a component of the new line. So we are extremely short and we robbed a lot of seed that they had produced and fortunately they were early enough so you could push it out.

So we’re going to have to replace that for this next coming year?.

And then just speaking about increased acreage, as we targeted acreage increases for 2017, I mean, obviously [indiscernible] 15%, a great year, any thoughts on looking at ’17?.

That's completely something we’re talking about right now as we’re looking and working with Dana Gartner, our Chief Marketing Officer, we're looking at our demand plan for FY18 and over the next several weeks, we will be deciding what our production plans are for next year.

We certainly expect that we will continue to grow contracted acreage to support the growth we are expecting, but we have - we are not in a position today to disclose what that acreage growth will be. We will be in a much better position to give guidance on that probably in mid-December or mid-November, I should say..

And then, finally, just one question on pricing, we've spoken about pricing in the past, I think the lower and varietals were actually getting, sort of moving up in price while the higher quality products were sort of stagnant, so there was less of a differential, is that staying the same, or you seeing, you know, how is the pricing outlook for….

It's pretty stable right now. It's staying about the same. What the marketplace is looking for is what are the yields that are going to come out of Imperial this fall and they are waiting to see those results. So we’re going to be a lot smarter in November, December, than we are right now because we will have that information..

[Operator Instructions] Our next question is from Ian Gilson, Zacks Small Cap Research..

On the 15% increase in acres, was that 15% increase carried over to current year or was that the increase from the beginning to the end of the year in 2016?.

Ian, that represents our crop year 2016, which includes the Australian harvest. That's already been completed in the April, May 2016. And it also reflects the acreage that's been harvested right now in North America. So we're talking crop year or calendar year crop year versus fiscal year..

So, of that 15%, can you give us an idea of how much is in the US and what varieties [indiscernible]?.

Well, as we talked about in prior conference calls, most of that year-over-year increase is being driven by ramping up our - the varieties we purchased from Pioneer. That's where the biggest increase in acreage growth happened year over year..

Now, you mentioned you will have Roundup Ready [indiscernible], building acreage for sale, is that what you're doing?.

We're currently planting our really first variety that's gone through the last five years of testing for the first foundation seed expansion, which would then be sold to farmers basically the San Joaquin Valley. So we only have so much breeder seeds, so it will be a slow expansion upfront, but then once it gets going, it will be logarithmic.

So we are expecting some early solid sales out of that, but it's not big. It might be like $100,000, $200,000 or something like that in the first year. So that will be a year from right now. We will be selling that seed and then we will be expanding it from there..

So basically, as far as the topline is concerned, Roundup will impact 2018?.

Yes. Ian, to clarify we do sell Pioneer - we do sell to the DuPont Pioneer varieties with the Roundup trait. What Mark is referring to is S&W varieties that have been stacked with the Roundup Ready trait..

Yeah. I understand that..

The other thing to make sure you got is that we are out in the field right now planting the first approved variety and we’ll be working on the second one. So hope there is probably a year from now, we will have our second one out also at the same time..

You mentioned royalty income, is that going to be a separate line item Matt, or you're going to bury that in revenue or what?.

Well, for FY17, it's not going to be a significant enough of number to warrant breaking out on the face of the P&L. With that being said, probably 12 months from now, I'm sure we will be giving a specific number of what that resulted in. So you will have that transparency..

And last question.

Basically, you said that you will be ramping up inventory, can I think?.

Ian, we are trying to create a 10% carryover on our inventory. So we have a better start in the first year moving forward with our distributors. We’re not currently there, but hopefully we will be after this ramp up that we just did..

And you did not have any carryover from the prior crop in Australia?.

Well, Australia is a little bit tricky, Ian, because it's really hard to say what the Australian crop carryover is because their harvest is happening in April or May. So by the time you come to June, we are really sort of still in the process of just selling that crop. The June balances of Australian varieties, we don't call that carryover.

It's not carryover until we've been holding up to 12 months..

We have another question from Tyler Etten of Piper Jaffray..

Guys, just one more from me. I mean, you've expanded into sorghum and sunflowers now, and talk about expanding into other potential crops. What might those potential crops be? Thanks..

Well, we do have a little bit of clover, so Matt can help you run through that program, and that's already there.

Corn is going to be one for sure from our new acquisition with SVG and we're definitely looking at, so you got sorghum, sunflowers, corn, and there is one other product at line that we are looking at right now becoming a distributor out and that's TEFF. So you might want to do some research on that. And we have some guys that are growing it.

We may be in a position to take that globally. All of the crops we’re talking about, Tyler, with the exception of corn are basically grown on tougher soils, poor soils with less water.

And so they really fit the geographic and climatic areas where we're trying to push into and where the major population centers are and where the dairy and forage units are expanding right now..

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Grewal for closing remarks..

Well, thank you, and the fiscal 2017 should be a very exciting year for S&W. We are leveraging the strengths of the global distribution platform, a large and diversified production base, leading edge research and development and a strong and expanding product portfolio to drive growth in our platform.

We are leveraging those strengths for additional crop opportunities, including sorghum and sunflower. We expect to report record revenues of $100 million on improved gross profit margins, while eliminating our convertible note in fiscal 2017.

Now, I appreciate the hard work from all our employees at S&W to develop our vision, to be the world's preferred proprietary seed company that supplies a range of forage grain and specialty crop products to support the growing global demand for animal proteins and healthier consumer diets.

And again, my thanks to everyone for participating on today's call, and we look forward to talking with you again at the conclusion of the current quarter, and I hope you have a great evening. Talk later..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..